Trai Recommends Flat Spectrum Usage Charge

Telecom regulator Trai on Tuesday reiterated its suggestion of charging mobile operators a flat spectrum usage charge as it found loopholes in existing method used by government to collect levy for use of airwaves.

“While taking a view on this matter, all possible steps should be considered by the DoT (Department of Telecom) to move to a simple, transparent and flat ad valorem SUC (spectrum usage charge) regime in accordance with law,”Trai said in its reply to reference sought by the DoT.

It has said that present ‘weighted average’ based formula may have a significant impact on the revenue payable to the government.

“The over-all SUC rate arrived at by the weighted average formula is also impacted by SUC rate fixed for each band…This may have a significant impact on the overall spectrum usage charge that is payable to the government,” Trai said.

The Cabinet last month approved rules for mega-spectrum auction in which airwaves worth Rs 5.66 lakh crore will be put for sale except spectrum usage charges (SUC) recommended by the inter-ministerial panel Telecom Commission. The Cabinet asked telecom ministry to seek Trai’s view on SUC before it approves the rule.

As per Trai, government considers only quantum of spectrum held by a telecom operator to calculate spectrum usage charge but this may not give correct value as intended under the concept of collecting this charge.

“While quantum of spectrum will certainly be a factor in any weighted average formula, this may not be the sole factor to estimate the revenue from a given band. It is widely accepted that currently some spectrum bands generate greater revenue than others even if the holding is smaller than in other bands,” Trai said.

It has suggested to DoT to take into account benefit that a spectrum band delivers and bid price of the airwaves can be used as one of the factor to determine an ‘approximate’ value for calculating SUC.

A DoT committee has said that it is not possible to segregate revenue that a telecom operators earns from a particular band as various bands can be clubbed to deliver 3G or 4G mobile services.

The DoT fixes percentage of amount that it will charge from revenue telecom operators earn by providing services. The percentage was earlier fixed based on slab rate ranging between 3-8 percent of telecom services revenue while exact percentage was levied based on spectrum holding of the firm.

The government, in January 2014, decided to cap SUC at a flat 5 percent for spectrum that was to be procured in the future auctions. The government imposed weighted average formula on companies holding spectrum allocated in past and buying spectrum in future.

“Accordingly, if DoT chooses to adopt weighted average rate of SUC, then it would be appropriate for it to carefully explore alternate proxies which may be used for computing the weighted average like technical efficiency factor and the market-determined price for such spectrum band,” Trai said.

Trai has said that the method suggested by it is only a temporary solution and all possible steps should be considered by the DoT to move to towards a simple and flat rate regime.

The Trai had recommended SUC at a uniform rate of 3 percent across the industry and gradually bringing it down to 1 percent of revenues from telecom services.

Trai said that the DoT has neither sought the opinion or recommendation of Trai on weighted average based SUC formula

in the past nor has there been any consultation on it.

The SUC has been a highly contentious issues of late with the industry. Reliance Jio has opposed levying of uniform SUC rates, as suggested by Trai, as it pays only 1 percent on its spectrum in 2300MHz band (broadband wireless access).

Finance Minister Arun Jaitley had said that the Telecom Commission took the opinion of Attorney General on SUC after recommendation of Trai was received and hence there was need to consult the regulator again before a final call was taken.

“While the optimal solution in the view of the Authority is to move to a flat rate regime, we are constrained to limit ourselves to examine the weighted average solution as suggested by Ld. AG (Attorney General) and proposed by DoT,” Trai said